Merchant bankers need to ensure sharper disclosures, particularly in four key areas, when assessing initial public offering documents of companies, the head of India’s capital market regulator has said.
Tuhin Kanta Pandey, chairperson of the Securities and Exchange Board of India (SEBI), also said that the regulator is undertaking a “comprehensive review” of its regulations, including its listing and disclosure norms, to “eliminate redundancy, ambiguity, and outdated constructs”.
Speaking at the 14th annual convention of the Association of Investment Bankers of India (AIBI), Pandey said that the regulator has been seeing recurring disclosure gaps in the IPO process, which reduce transparency and investor understanding, and lengthen fund-raising timeline through repeated regulatory queries. He then listed the four key areas where disclosures need to be sharper. There areas are risk factors, valuation rationale, objects of the issue and use of proceeds, he said.
Improvements suggested
Pandey suggested how disclosures on capital structure, business model and projections, among others, can be improved, and what checks must be done.
“Disclosures on capital structure must clearly explain past capital raisings, preferential allotments, and changes in control - especially close to the IPO. We also expect greater business model clarity, with transparent revenue and cost drivers. The Management Discussion and Analysis should move beyond narration and explain the internal and external drivers of performance.”
Pandey said that regulatory inspections have shown that “due diligence is not always independent and, at times, relies on issuer undertakings”.
“Projections - especially for working capital and capex - must be independently verified, and backup papers must be maintained for all material statements. Basic checks, such as site visits, must be evidenced with complete reports and photographs with geo-tagging and time-stamps,” he said.
Addressing merchant bankers at length during his speech, Pandey reminded them that they “sit at the centre of the IPO process” and are “the first line of disclosure integrity–ensuring the offer document is clear, complete, and verifiable on business, risks, governance, and use of funds”.
On things they are doing right, Pandey said that “merchant bankers have been adopting by maintaining backup papers and refusing to make claims without supporting evidence”.
Pandey also said that SEBI’s regulatory priority will be to constantly improve information accessibility, enhance investor comprehension, and encourage more informed participation by investors in the IPO process. “However, we will intervene wherever there is serious misrepresentation or a clear breach of regulatory requirements,” he said.
